The Indian EconomyJANUARY 2019

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Source: IMF WEO October 2018 database

India: A Large Middle Income Economy

India’s nominal GDP is about $2.6 trillion in 2017

In purchasing power parity terms, India is the 3rd largest economy

As per the IMF, India is the seventh largest economy in the world (in nominal terms)

India has doubled its per capita income in the last ten years (2006 to 2016)

23.219.5

9.55.4 4.2 4.0 3.2 3.2 2.9 2.9

GDP at purchasing power parity, 2017(Trillion US$)

59.8

50.8

44.3

44.1

42.9

27.9

16.7

15.6

12.4

7.2

Uni

ted

Stat

es

Ger

man

y

Uni

ted

King

dom

Fran

ce

Japa

n

Russ

ia

Chin

a

Braz

il

Indo

nesi

a

Indi

a

GDP Per Capita at PPP, 2017 (‘000 US$)

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India expected to remain one of the leading economies

1 Output data and forecasts for India are on fiscal year basis and at market prices (base year-2011/12)Source: IMF World Economic Outlook, January 2019 update.

Global Growth rates- World Economic Outlook

2017 2018Estimates

2019Projection

2020 Projection

World 3.8 3.7 3.5 3.6

Advanced Economies 2.4 2.3 2.0 1.7

USA 2.2 2.9 2.5 1.8

Euro Area 2.4 1.8 1.6 1.7

Japan 1.9 0.9 1.1 0.5

Emerging and Developing Economies 4.7 4.6 4.5 4.9

China 6.9 6.6 6.2 6.2

India16.7 7.3 7.5 7.7

Brazil 1.1 1.3 2.5 2.2

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Indian GDP is dominated by Services

Agriculture, 32%

Industry, 27%

Services, 41%

GDP Composition 1990-91

Agriculture, 17%

Industry, 22%Services,

61%

GVA Composition 2017-18

Source: National Accounts

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Presence of a wide variety of sectors

Mining & quarrying12%

Manufacturing77%

Electricity, gas, water supply & other utilities

12%

Industry Composition 2017-18(Sector share in Industry GVA,%)

Construction12%

Trade, hotels, transport,

communication and broadcasting

services30%

Financial, Real estate and professional services

34%

Public administration, defence and other services

24%

Service Composition 2017-18(Sector share in Service GVA, %)

Source: National Accounts

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A young population getting younger

37 49 77

213

492

1,00

8

860

35 47 71

217

466

984

985

27 36 55

235

405

795

1145

0

200

400

600

800

1000

1200

1400

Korea Thailand Japan US Europe China India

Size of the workforce (millions)*

2015 2025 (Projected) 2050 (Projected)

* Population aged 15-64 yearsSource: United Nations population statistics

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Number of Households (in million)

Annual Gross Household Income (US$) 2005 2016 2025

Elite > 30,800 3.1(1.5%)

6.5(2%)

15.8(5%)

Affluent 15,400-30,800 7(3%)

17(6%)

33(11%)

Aspirers 7,700-15,400 17(8%)

40(15%)

61(20%)

Next Billion 2,300-7,700 89(42%)

121(45%)

140(46%)

Strugglers <2,300 93(44%)

83(31%)

55(18%)

Source: BCG 2017 report on “The New Indian: The Many Facets of a Changing Consumer”Note: Income distribution is calculated in constant 2015 dollars; $1= 65 rupees. Not all percentages add up to 100 because of rounding off.

A growing middle class

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India’s overall trade engagement..

Source: Ministry of Commerce and Industry

41.7 38.4

17.9 17.3 14.8

Pear

ls &

prec

ious

ston

es

Petr

oleu

mpr

od.

Mac

hani

cal

appl

ianc

es

Vehi

cles

&pa

rts

Org

anic

chem

ical

s

Top 5 Commodities Exported(USD Billion, 2017-18)

132.3

74.7

48.337.8 19.2

Min

eral

oil

& fu

el

Pear

l &pr

ecio

usst

ones

Elec

tric

alm

achi

nery

Mec

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appl

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Top 5 Commodities Imported(USD Billion, 2017-18)30

0.4

314.

4

310.

6

262.

0

275.

9

302.

8

489.

9

451.

0

448.

1

380.

0

384.

4 459.

7

790.3 765.4 758.7

642.0 660.2

762.5

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

FY2013 FY2014 FY2015 FY2016 FY2017 FY2018

Foreign merchandize trade – Exports and Imports (USD Billion)

Exports Imports Total Trade

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India’s trade in services..

Source: Ministry of Commerce and Industry, RBI

145.

7

151.

8

158.

1

154.

3

164.

2 195.

1

80.8

78.7

81.6

84.6 95

.9 117.

5

226.4 230.6 239.7 238.9260.1

312.6

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

FY2013 FY2014 FY2015 FY2016 FY2017 FY2018

Foreign services trade – Exports and Imports (USD Billion)

Exports Imports Total Trade

Software Services, 40%

Business Services, 19%

Travel, 14%

Transport, 9%

Financial Services, 3%

Insurance, 1%Construction, 1% Others, 13%

Exports of services, 2017-18

Software Services, 4%

Business Services, 31%

Travel, 17%Transport, 15%

Financial Services, 5%

Insurance, 2%Construction, 1%

Others, 25%

Imports of Services, 2017-18

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Policy reforms being implemented by the Government

Source: CII compilation

• Easing the regulatory environment for doing business:

Single window system

Online application for Industrial Licenses

Administrative processes in states

Insolvency and Bankruptcy Code

• Harmonization of indirect taxes through GST:

Implemented from 1st July 2017, landmark tax reform

Makes India single market and reduces tax multiplicity

Infuses competitiveness through Input Tax Credit, avoiding cascading taxes

Has improved tax base

• Opening up more sectors to foreign investment:

Defence, railways, insurance, construction, real estate, etc

India is now one of the most open economies in the world

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Foreign investment inflows improved after FDI reforms

Source: RBI, CII

34.3 36.0

45.1

55.660.2 61.0

27.6

5.0

40.9

-4.0

7.6

22.1

FY13

FY14

FY15

FY16

FY17

FY18

Foreign Investments- FDI and FPI(USD Billion)

Foreign Direct Investment

Foreign Portfolio Investment

• The government has increased FDI limits in sectors like Defence, railways, insurance, construction, pharmaceuticals and medical devices.

Increased FDI Limits

• Sourcing norms have been relaxed for companies engaging in single brand retail trade of products having cutting edge and state-of-the-art technology.

Eased sourcing norms

• Investment in most sectors is under the automatic route, except a small negative list, making India one of the most open economies in the world for FDI.

Automatic approval for most sectors

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Indirect taxes harmonized through Goods and Services Tax

Source: Economic Survey Vol II (2016-17), CII

Furthering cooperative federalism

Reducing corruption & leakage

Simplifying complex tax structure, unifying tax

rates

Creating a common market

Furthering ‘Make in India’ by eliminating

import bias

Eliminating tax bias against

manufacturing/reducing consumer tax burden

Boosting revenues, investment and growth

• With the implementation of GST, w.e.f. 1st July 2017, the country has moved from a multiplicityof taxes to a four-tier tax rate structure - 5%, 12%, 18% and 28% - with availability of inputcredit across the value chain.

• Despite the short-run disruptions this historic reform has increased the tax base and improvedcompliance.

Advantages of GST

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Regulatory environment for doing business has been simplified

Source: CII compilation

• Regulatory hurdles in areas such as starting a business, getting clearances and enforcing contracts have constrained the growth of Indian businesses.

• Hence, the government has taken about 7000 big, small, medium and nano measures to improve ease of doing business, some of which are mentioned below:

The government has been making efforts to further improve the ease of doing business and aims to bring the country in the top 50.

Ease of Entry

Providing all regulatory

permissions at one source.

Setting up a timeline for

clearing applications

Online application process for Industrial Licenses.

Reduction in documentation for export and

import

Ease of Exit

The new bankruptcy and insolvency code

was implemented in

May 2016

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India’s EODB rank improves to 77

Source: World Bank

142130 130

100

77

2014 2015 2016 2017 2018

Ease of Doing Business Rank

With a firm resolve to improve the business environment in the country, the government initiated several measures to simplify the business process and remove bottlenecks. As a result India’s EODB rank improved significantly in 2018.

Improved performance across several parameters

Parameters Rank 2017 Rank 2018

Paying Taxes 119 121

Resolving Insolvency 103 108

Getting Credit 29 22

Protecting Minority Investors 4 7

Enforcing Contracts 164 163

Dealing with construction permits 181 52

Starting a Business 156 137

Trading Across Borders 146 80

Getting Electricity 29 24

Registering Property 154 166

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